Darma Mahadea

Environmental conditions for SMME development in a South African province

The development of entrepreneurship is the focus of considerable policy interest in South Africa and many other countries. This is particularly in recognition of its contribution to economic growth, poverty alleviation and employment creation. In South Africa, various new strategies and institutions have recently been created with a view to empowering formerly disadvantaged members to enter the mainstream economy as entrepreneurs rather than job seekers. While the government directs considerable efforts to advancing Small, Medium and Micro Enterprises (SMMEs), certain environmental factors can favour or hinder the optimal development of these firms. According to the Global Entrepreneurship Monitor (GEM) reports, the level of entrepreneurial activity in South Africa is rather low in relation to that in other countries at a similar level of development. This paper uses factor analysis to examine the internal and external environmental conditions influencing the development of small ventures on the basis of a survey conducted in Pietermaritzburg, the capital of the KZN province. The results indicate that three clusters constrain SMME development in Pietermaritzburg: management, finance and external environmental conditions. In the external set, rising crime levels, laws and regulations, and taxation are found to be significant constraints to the development of business firms. JEL L26